Ben Davies: Financial Repression and Technocratic Governments

style="font-size: medium; color: #000000;">Today we publish a highly recommended Interview with Ben Davies, Fundmanager and CEO of Hinde Capital in London. This interview really chronicles actual history. Ben Davies shares his views with us about the actual events in the financial system in a very impressive way and why physical gold is a must have in everybodys portfolio. You will not only listen to the views and opinions as a fundsmanager. Ben is kind enough to let us be part of his personal and private settings as well. For us at Metallwoche this makes this podcast unique.

Interview with Ben Davies on Metallwoche.de Recorded February 02/29/2012 By Michael the Düsseldorfer

Michael: Today for the first time I have a very interesting guest on our show at Metallwoche.de. I will talk to Ben Davies. He is Co-Founder & CEO of Hinde Capital. The company is based in London and Ben is one of the top fund managers in the gold, silver and commodities arena. What I really like a lot listening to Ben or reading his published opinions is that he puts his money where his mouth is. So lets switch over the line to London. Hello Ben, good to have you on our show today.

Ben: Hi, Michael. Very good of you to have me on your broadcast. Looking forward to it.

Michael: I hope that your day was not as stressy as you have mentioned to me last time when you had a lot of work, when you had a lot of trouble and you had to manage a fund in the mean time. And sometimes you have to go to the gym as well. So, was it a little bit more relaxed today for you?

Ben: I have managed to get in my mandatory workout. I try to workout four, five times a week, trying to keep the brain picking over. But, yes sometimes the negative feedback loops sometimes though where you are just far too tired to concentrate. But I think over the long-run it keeps my mind sharp. So, yes. No, I am in good spirits today. In fact, as we are talk, the markets, all risk assets are rallying. Silver ist doing particularly well. So our fund is well positioned. We are enjoying this rally. That always makes you feel better.

Michael: When we have talked, it is Tuesday and we see that we have quite a strong rally in silver today, which for the first time, since - do not beat me - what is it, three months already we are tackling for the time being the thirty-six dollar level. I know that you have mentioned a couple of weeks ago, that you have seen a good entry point in silver, because you still think that a lot of people get trapped on the short side. Do you still stick to this?

Ben: Yeah, we need to put it into the context in what has happened at the end of December last year. The move down, and to those who are not familiar with the gold market, gold had come of record highs in September to November period and then into December we sold off quite heavily from 1700 down to 1525. And this was primarily just a function of low volume markets. There were not many participants around at the end of the year. And it was classical deleveraging, which in fact it happened right across the board. We had a fund, which I will not mention but is well known across the space. It did have a poor year and there were some redemptions from this fund, which mean, he had to reduce his GLD-ETF positions. And it was pretty clear that was one seller in the market. Now this took us down also in silver. All the base metals were coming of. And I would say it was a risk off where all asset classes were going down. This took us to what we call structurally undervalued levels. Then in January the market bounced back, very rapidly . We were down about 10% in December and we have rallied back about 12% in January. Because prices got really far too low in the paper markets and it was artificially pressing down on the physical markets, where in fact actually physical demand was very strong out of Asia into the China New Year, which comes around at this time of the year. Now, markets bounced so aggressively back to the 1760-zone that people I felt that this was a good shorting opportunity. And actually, what typically happens in markets you go through an overbought period. You can work that off in two ways, either by going sideways over time or it can correct back with price to work off the overboughtness. And I think a few people got short shorter and obviously for every short there is a long. But we believe that a new player came into the market. Once the overboughtness had worked its way off over time. And we are probably seeing some serious official sector physical demand. That is what we suspect and it seemed the market traded very well. Silver has actually done a little bit better on the spread ratio. The gold-silver ratio has come in. This is primarily it trades very well when people believe that there is going to be a pickup in the economy. There is an element of markets everywhere re-pricing that the world is not completely ending and, actually, that the Eurozone to some extent, the Greek default is happening, but it is priced in the market. So, it is almost like a discounting mechanism. I think that there is something more sinister going on and it is really more about qualitative easing by the ECB. And this is really causing markets to rally. And really that is not a very positive sign to me. It is not based on true fundamentals. Clearly there is a massive disconnect between financial markets and the real economy.

Michael: First of all, I have to make a compliment to you that you do not mention John Paulson. But when you talk about silver Ben, when we both watched the latest COT-structures on silver, at least I think it was the latest report coming out, we both saw that the commercial site was still heavily shorting into the advance of silver. So when we see a move of today, maybe we could see a little bit of a surprise, especially on the small and weaker handed shorts. They have to cover or not?

Ben: Yes, I think that is an element of that. I think people make too much out of the shorts in Comex in terms of the commercial side. People do not understand that the actual natural bias of a bullion house is to own what is called physical gold and OTC-gold, which is normally held on the long side, vs. a short on the Comex. That is your natural position. So clearly if those entities were lifted in more physical silver in this case. And they would have to go back and cover their shorts. You might see that happening. So, they would have been hit in paper. They would have sold some Comex against it. So, there is an element of that. But there is also, of course, as we have talked about a structural short on the commercial side. But it is not a naked short. I would call it an implicit short. Because we believe that the OTC-paper market does not back one for one. So for every unallocated account by which I mean it (gold) can be leased or lent

Michael: You have talked about Japan. Because you said in Japan you expect something what is not so much on the radar for a lot of people. You think that we will have quite a dramatic situation coming up in Japan. Is that right?

Ben: Actually, I am wanting to do a lot of work on that. So, I am very happy to talk about that another time. But I think I have a lot of stats (statistics) and numbers in my head. These were from three months ago but things are very fluid. So in terms of, for instance, tax receipts etc., these have shifted dramatically in Japan. And we are doing a lot of work on this at the moment. So, I would rather come back another time.

Michael: What was your impression  you were definitely not surprised  when George Osborne, your British chancellor, was saying over the weekend that the British Government has run out of money because all the money was spent in the good years.

Ben: Well, he is absolutely spot on. There is a bit of political posturing. I would go so far as to say that not only have we spent all the money, we have spent future generations. And the reality is that if people think that it is going to affect only future generations. They sorely misunderstand the situation. This is going to affect you and I, right now. I think people are beginning to waken up to that. They are having an epiphany. Lets be real here. The global society has hit a debt saturation point. That is effectively what he is saying. And this is really whereby our collective income can no longer even service principal or interest payments. So what we are witnessing today is really just policy makers trying to prevent a rise in market interest rates. And why do they want to do that? They obviously want to issue debt in order to service themselves. So there is this leads to highly distorted systems whereby if you keep the interest rates at the zero bound - and I call this price control extraordinaire  you are not allowing free markets to determine at what rate humans want to lend and borrow. And really interest rates are really about human preferences. Does someone want something now or are they prepared to borrow now to have it? I would say in the current environment people do not want to borrow money at a higher rate. But at a zero rate they are enticed to because effectively it is free money. Clearly this is a game part of the whole mechanism that we have been talking earlier about, trying to get nominal GDP up. You are encouraging expenditure. Our economy is very predicated still globally, but particularly in the developed world, in the U.S. 77% of GDP is being driving by the consumer, which is a shocking statistic. And we have shifted away from the manufacturing industry to service oriented industry and consumerization. And this is normally the stuff of the end of hegemonies. For different reasons, actually, why the U.S. could have a reprieve and that have to do what I call the energy revolution. But maybe we can circle back to that later. But the reality is that all governments realize that they have run out of money. This is why on the fiscal side although they are trying to introduce austerity. And the UK and in reference to George Osborne, actually, public sector borrowing requirements continue to rise despite the fact that they are trying to cut back. And this is why they used the Bank of England to maintain their monetary policy of quantitative easing. They keep coming back to the market. We have a situation where the Bank of England has now got a balance sheet that is almost 25% of GDP, which is a staggering number. This is the problem I have mentioned. That is an insidious problem. Where do you stop? And again to the ECB, they have done these three year  LTRO, effectively, they have exchanged toxic assets for money in order to maintain the illusion of solvency for the banking system. What will happen in three years time? Will they roll that over? This is all about preventing a debt roll-over crisis for the banks. This is all about preventing a debt roll-over crisis for, guess what, the governments. Looks for the naked eye it looks like debt levels are going up almost exponentially. But actually  sorry I should really rephrase that  to the naked eye inflation looks like it will go up almost imperceptibly. Obviously, debt levels have risen exponentially. But actually we did some math on it, when we saw that. Actually when you look at the log we have an exponential of the exponential. And what that means is that you have an exponential rate of the exponential which is a staggering increase. Mathematically, you almost can not compute it. This is a very worrying phenomenon. What it tells me is that at some point inflation will manifest itself in the system. People need to understand that we are actually going through a debt deflation and I would liken this to a coin. On one side of the coin, we have credit or debt deflation and on the other side we have monetary inflation, which is the official sector, the central banks, the governments trying to prevent this deleveraging. You can have both happen at the same time. So, you have this monetary inflation, which will manifest itself in, I believe, in real goods and prices rising. So, in our example look at gold. There is, in theory, a finite supply, lets say, above ground. As people begin to obsess about the validity of money, what actually happens is that they start discarding it. This is akin to an increase the money supply. This is when you get a hyperinflation. And I do not believe that it is hyperbole to say that we will get hyperinflation of goods, while at the same time having a collapse in the credit system. That is completely possible. It has happened in Zimbabwe. The governments deficit is 10% of GDP in the U.S. for example. But the U.S.-deficit is over 30% of all government spending. And he showed that in four cases of mayor hyperinflation that number had to be only 20%. We are already there. So, people were asking me why we are not seeing the hyperinflation. Well, there is a very, very, very strong deflationary element. But at some point again, it comes back to our exponential it is almost imperceptible.

Michael: Ben, on the last topic that you have told. On one side of the coins there is what you have just described as a fund manager, as a guy who has a lot of knowledge. But on the other hand, you are a family guy, you have kids, you have a wife, you go through the City of London, you go to the gym. What are your impressions and your personal feelings of the people you see and talk to? With all the knowledge which you have.

Ben: Well, London is a very unique place. It is on the Greenwich Mean Time, so it is on the center of the universe in regard of time. And that gives it a unique place in our global culture. It means that business can be transacted both East and West in our time zone. Obviously, Europe is only an hour in difference. So, they can benefit as well, but that has been a big part why the City of London, partly because of the taxation as well, original time zone differences made it conducive to doing business. It allowed London, for instance, to really take over from New York. Because obviously Wall Street was where it was all happening. We all remember the film Wall Street and Gordon Gecko. It is a very cosmopolitan place. We had a very friendly immigration policy. Lets say. A lot of European money has come flooding in, and especially with Sterling weak. The Bank of England has done a wonderful job, in their opinion, I imagine. They have managed to devalue the currency. They definitely embarked on that begging-thy-neighbor-process. So, Euro has strengthened remarkably. Actually, when the crisis hit and housing just like anywhere else, we had an extreme housing bubble on my opinion. But actually housing really never corrected. I would say just on a mark to market it was 20% down. But in the high-end, in the center of London, you could not really trade. That people just did not sell their house. People were not able to get mortgages. But what happened was that the Euro strengthened dramatically against Sterling and there was a flood of Europeans coming into the country, who bought up housing. Effectively, they had a 30% appreciation on their currency and they had housing that would probably when it got to transact down 10%. So a 40% haircut in effect on housing here. You then got the Arab Spring and you had every despot in the world  in that part of the World, the Middle East  coming and buying high-end property. So we have actually seen property rise here quite dramatically since the crisis. Incredible as it might seem. Obviously, more in the high-end. If you did not read the papers, you would think that place is absolutely booming. There are lots of building works going up, actually, in the center of London. And I would say that the wages have been increasing quite demonstratively. It is, of course, going to turn for the City. You have to remember that the City probably makes 20% to 25% of UK-GDP. Just to finish off, I would say that this is a classic example where risk-takers who borrowed excessively to buy large houses have effectively being rewarded for their largesse. Whereas savers have lost out massively. And I was absolutely disgusted to see Mr. Bean [not the comedian but Charlie Bean, deputy of the Bank of England] actually said savers are going to pay their way. I think that is morally reprehensible. He should be removed from the MPC [Monetary Policy Committee of the BoE] in my opinion. Because if someone thinks like that, in a position like that, it tells me only one thing, that they are not going to stop the spigots at this point. And we all know where that leads to. It will ultimately lead to higher prices. And we are getting them in this country. My run rate, as we say in English, my inflation rate is nearer 10% which is definitely double the official status.

Michael: We had the same discussion here in Germany as well. When you listen to the normal news, when you have the normal TV shows going on, the financial TVs or the main news, you hear people talking about everything is fine, they spend more money, because the wages will go up. When you listen to this, you hear that the unemployment, the official figures are coming down in Germany. On the other hand, if you just have a look a little bit in the surroundings, you see that low wages jobs are being created. A lot of people are not able to keep up living with just one job. They have to have two jobs or more. And still people look at Greece, people look at Athens, people look at Madrid or Portugal to see the situation there. [There is] 45% unemployment in Spain, with the Spanish youth. And they still think that is not possible in Germany. Do you have the same impression in London that people think it is not possible that this could happen here as well?

Ben: Yes, I think the analogy I would have for that is like the blinkers that you put on a racehorse. The horse can just make out its frontal /slight peripheral focus. This blurred image what is going on around it. But it is sufficiently protected that it looks just forward. So, it keeps running forward. And I would say that people out of the corner of their eye or their periphery are aware of the events on the TV. I would say most people now turn it off. Now obviously I am generalizing. You know, I have a lot of friends saying oh, all this doom and gloom in Europe. I can not cope with that. So, they switch the TV off. Yes, that is the best way. It is very distressing. I think there is a potential understanding that this is possible in this country. But the truth is, until it happens, people can never really conceive that it is truly possible. So, I really think that people are continuing on as though life continues in a positive fashion. They do their jobs. They have good standards of living. Nobody has really, certainly in Southern parts of England, lost out badly. But I would say that the regional parts of the UK have seen a demonstrative loss in the service sector and manufacture sector. The shopping centers close down as people do not have much disposal income. Fuel is through the roof. Food prices are through the roof. But how this all has come about? This is really because central banks have effectively taking on a lot of the troubled assets in the economy. And they prevented them from declining. So, when that happens you effectively - all sectors of economy, whether it be loans extended to firms, house builders, bonds, stocks. - they all get prevented from going down because of the functioning of monetary policy. Take the U.S., they bought 1.5 trillions worth of Mortgage Backed Securities. They are effectively the major participants in the U.S. mortgage market. It is now effectively being socialized. Fannie Mae and

Michael: Freddie Mac

Ben: Yes, Freddie Mac, thank you. I used call them Fraudy May. Of course, you have a situation where they have effectively socialized the private sector losses. This is very worrying. Because this is price control extraordinaire as well. I think that the situation is that the governments will continue to obfuscate and to create the illusion that the system is working, which they are doing a particular good job of. This comes back to what you originally asked me. Which is, do people believe that this could happen in this country? No. Because I do not think they really understand the dynamics that are taking place. The government is embarking on serious financial repression here. You only have to start looking at the margin that financial legislation, regulation, taxation is really starting to change. I call this capital conscription. Why do I call it capital conscription? Because the government is trying to grab any capital they can in order to plug the gap in their finances. Quantitative and qualitative easing is classic financial repression. You got the Dodd-Frank Bill [Wall Street Reform and Consumer Protection Act, which stipulates among others things the establishment of the Financial Stability Oversight Council to oversee financial institutions in the U.S.; enacted in July 2010], a global financial regulatory act instigated in the U.S. Again this is bringing onerous regulations against the banks, which is obviously very popular with people. I do not want to blame the people. But actually this will have the impact of creating more capital for  guess who  the governments. What we are seeing here is not the death of capitalism, but actually a ramp-up in socialism. I really believe that the ultimate end game here is that most money centered pension companies will be nationalized. Because that is the ultimate end of a socialist government.

Michael: Ben, when we talk about that, then we both know that there are two different structures, normally. We have the Federal Reserve on one side; we have the Bank of England and the UK on the other site. But on the ECB, normally, the rules are quite different concerning the value of money, the wealth preservation of the money. Other then we have with the FED. Now November last year the Fed announced that they would give unlimited dollars swaps over to the different central banks. And there were six different central banks involved. Then we saw afterwards the first LTRO coming up, with a second tranche tomorrow, which you have mentioned already. By which the banks can take another unlimited amount of money for 1% for the next three years. So, basically what we are seeing is probably a channeling through the Federal Reserve over to the ECB. And if we take this all in context together, then I think that we stick a little bit to the point which Jim Sinclair had mentioned already that since a couple of years we go to a global quantitative easing but in infinity. Infinity not on time but on the amount of money, which will be papered over the problems that we have for the time being. Is that right?

Ben: In a fact we are doing that. You are right about the dollar swaps. Most debt in the world is denominated in U.S.-Dollars, even within the Euro-system. This is why they provided dollar-swaps, of course, in theory that gets paid back. But I would say there could be in infinity never ending swaps. And I would say that you can not control necessarily where all that money goes. There was a famous economist from a few centuries back, Richard Cantillon (1680s  May 1734 an Irish-French economist, http://en.wikipedia.org/wiki/Richard_Cantillon ) what he said was that once you embark on infusing the system with money you can not actually control where it goes. It does not enter into the system uniformly, and the way I would analyze it, once you have a sector that is incumbent with debt, for instance housing, you noticed that in the U.S. particularly, places like Phoenix is a great example. I have good friends actually who have bought in Phoenix. They saw an opportunity to buy from distressed housing, but actually despite all the money that is being put into the system and low refinancing rates actually prices are still lower three years on. I think that is a classic example for money that is created does not go back into the incumbent areas. It actually find its way into areas where there is a shortage of supply, which is why you see is particularly applied to stock, where there is a very small float of particular stock, if you have a lot of buyers suddenly coming into the market. Remember that there is always for every buyer there is a seller. But a buyer would step up his price particularly if there is greater demand, which is why gold goes up. If people perceive that they want to go out of currency and they want to buy gold. And there are suddenly a hundred more people then there was the day before. They will push up the price. They will buy the offer price as we call it and the seller will notice that feels like that there are buyers. So guess what? He pulls back his price, because he senses that the buyers would pay higher.

Michael: We talked about the actions with the LTRO again which is offered by the ECB. Do you think that is a way to bring the confidence back into the system? I think that is nonsense, or?

Ben: There are two concepts: price and value. Clearly, the confidence is not being necessarily restored, but people understand that certainly for the next three years there is sufficient capital which is being made available in their opinion to maintain transactional solvency for the banks. All that it has done is a fantastic job of goosing - as we say in English. Prices are higher in real assets. You have yields that come down dramatically in the peripheral bonds. Partially because you cannot get repos, to borrow the bonds to short them anyway, because guess what, the ECB is not lending a lot of them out. Again that is another example of financial repression by not actually allowing the market to facilitate itself. The markets are so distorted to this day that it is not reflective of any true price. And this is my point. The prices may have rallied, but the value is a very different construct. Is it really worth the value said? When you have a term structure that is zero in bond rates right across the board, pretty much, you take it from one-day-paper or ninety-day-commercial-paper. Actually ninety-day-commercial-paper in the U.S. is actually widening a bit in the moment. Because it is one thing the Fed can not control. They closed off the asset-backed and commercial paper program couple of years back. So they are actually not in that market. And people are borrowing in the short-term. If you have the term structure at 30 year bonds people take 200 basic points. Actually that is pretty effectively zero. That is closing get back to zero bound because obviously inflation is running it 3%, 4%, 5% depending on which country it is in Europe or UK. And so we have zero to negative real rates. When you do that it is a discounting mechanism on all other asset classes and equities will rally to such point as effectively when your rate of return is zero. Just like bond rates. And this is what we are doing. Likewise gold is effectively rallying, so at some point your rate of return is relative to the amounts of paper money that is out there or be zero. For example, in 1980 when we were at 800 and plus dollars over night, actually, gold was backed the monetary base to 140%. Clearly that is an example where your rate of return is negative and is not even zero. And that is what the distortion of financial markets or governments are doing today.

Michael: Ben, when I watch Hinde Capital for the time being, I know that your main business before was slightly different, you was trading bonds for quite a long time and you switched over and you build up Hinde Capital in 2007, so roughly nearly five years ago, and your main focus for the time being is on precious metals and on mining companies, that is right? Or is there something more included?

Ben: That is right. Just a little bit of background. I used to run trading for a company called Greenwich Capital that was owned by Royal Bank of Scotland and previously before that it was Greenwich NatWest and people might remember there was a hostile take-over and RBS took over NatWest. Greenwich was kept as a stand-alone subsidiary. I ultimately ran trading on U.S. fixed income... We had the housing collapse in 2007. I wanted to be out of the financial system. I did not believe in bond markets anymore. We had debt saturation. That we would not be able to finance the mess we had been creating. And that what is happening. And I felt that gold would protect my purchase power, of my friends and family. And here we are today and I feel that gold is in many ways undervalued as it was when I started in 2006-2007, when we started the fund. I feel that the monetary bases have grown so much that gold still looks just as undervalued. And for me nothing has changed.

Michael: Ben, I have to be honest to our listeners, because they all know that I am not a big friend of funds. Can you give a little bit of background? Therefore, I have to ask you some questions about the funds. If somebody wants to open an account with you and put money in the fund, I read that the minimum amount is roughly a hundred thousand Dollars or the equivalent in Euro or British Pounds. Is that correct so far?

Ben: You do not open an account. We are a classic alternative investment management company. Hinde Capital Limited Company is FSA-registered [Financial Services Authority] in the UK. We have Cayman listed, stock exchanged listed entities, which is Hinde Gold Fund. People are buying into a share of that fund and the backing of that fund is primarily physical allocated gold held in Bank Julius Bär. We have a structure that allows us to create a small over-allocation to the gold market. Whilst at times we can reduce it. We are a long managed fund, so when the markets going up we are slightly over-invested and when the markets are going down we are slightly under-invested. And we are trying to capture waves in the gold market over a quarterly to a yearly basis. Our target is 15% net of these above of the gold price. We have achieved almost that today, since we have moved to a gold benchmark in 2008. So, it has got two things: security of assets, paramount, and two, we are creating a return in excess of the gold price. I do not mind saying that we are very proud of what we have achieved until today. I think we have a unique fund that is not replicated anywhere in the world.

Michael: Honestly, I did not look into the structure of the fund. Do you have discretion in trading the fund or are you obliged to buy when money is coming in? Or how is it structured? Are you able to keep your decision, if you want, to be 100% in metals or 100% in cash or depends that on the situation?

Ben: That is a very good question. Actually, it is very simple. We have a risk management system. I call it. But it is a trading model that effectively we get signals that will get us as I said over-invested or underinvested. So, new money is coming in monthly. It is a monthly subscription. By the way, we have no subscription fees, no redemption fees. I am a large shareholder in the fund. I have a very large amount of my wealth in our fund. It is my main gold holding and precious metals holding. But we actually always have this physical gold which just lift hedges in order to achieve that holding. We are managing the gap risk. Sometimes you may have a delay on the delivery of the physical allocated gold and because I am concerned that the OTC-market might have an issue at some point but I think that is way down the line. That could be a default risk and we tried to avoid that. And actually when MF Global happened, this really exemplified to our existing customer base and to new ones. Actually we have quite a few we got inundated at that time with requests for the fund. Primarily because of the way the structure was. We effectively have two prime brokers. We are able to move gold and cash around, well, we do not move gold around, but we can move cash from New Edge or Soc Gen,our prime broker very quickly to the Bank Julius Bär. But in reality, 75% of the time, holdings are in physical allocated gold and the rest is a quasi -structure.

Michael: And you are trading silver as well?

Ben: Yes, we have a 12.5% holding allocation. This allows us we lift a hedge. So when the market goes up in silver, when we have a model signal to buy or sell. We either hedge or lift our hedge accordingly.

Michael: I remember quite well that you was one of the few in late April 2011 when we had the big run ups who warned about the setback, probably a serious setback in silver. We did that as well. But I remember that and I probably guess that you took an opportunity on the opposite side when everybody was steaming into the market.

Ben: Yes, thank you for bringing that up. Look, not to blow in our own trumpet, we did write two pieces actually. If people want to go to our website and, perhaps, we may mention that later. In August 2010, we wrote a piece Silver Velocity - The Coming Bullet where... actually, it explains in many ways how we use our models to show whether whether we are going to have a violent move and we believed that silver was going to from 18 to 30 dollars and maybe higher very quickly. This is what it did. We then announced that in April 2011 when we were trading 45 to 50 dollars that the market was going through what we believed was a herding mentality. We actually use complexity theory and mathematics in a piece then, people can go and read called Silver Criticality why silver might crash. And we outlined again some of the tools that we use to ascertain why the market was potentially going to break down. Not only did we call the breakdown, but we actually called the duration of the correction. After a big crash you had what is called a after shock period when the market has to again work its way off sideway. It is a bit like gold did in 2006. We had May 2006 big high and then we moved sideways into October 2007. Exactly the same thing has been happening with silver. We caught the recent rally in silver. And one discretionary element we have is that we can spend through options 1% of our AUM [Assets under management]. We do not sell options, but we can buy options.

Michael: Bull markets as we both now are just made for the task of the bull to throw up the rider. So, a lot of people who think they can trade the markets and we have this in our show so often, they just burn their fingers because they always think they can time the market. Probably, they should better leave this.

Ben: Sorry, I just want to say one phrase of my partner always uses that makes me laugh: Bull markets makes geniuses out of idiots. We must never forget that. We have to keep humble. Keep our humility.

Michael: There is one question that I still have for the fund. I was a little bit puzzled when I heard the interview with Chris Martenson when you talked about that you have your own big position in your fund as well. I think it is exactly the right to do, to put the money where your mouth is. But you have told Chris that you are still quite confident having the gold in Julius Bär. You told him, that, of course, you want to have it outside the normal bullion bank investments. That is for sure. But I was quite puzzled that you still have it in a bank.

Ben: Well, I do not consider Julius Bär part of the traditional system, investment banking system. I think it is isolated from the derivatives risk. I am not worried about rehypothecation. We have custodial accounts. We are based in the vaults of Julius Bär. We actually have for what is worth we have the custody protection of Switzerland based on those accounts. That is a nice bonus. I think that the reasons why we wanted to trying this. With MF Global we had rehypothecation. That first came up under the Lehman repo101s that is probably when most people heard about it. I do not see those risks. This is why we went to Bank Julius Bar I am not so concerned at all. And I believe that if I want to maintain my wealth the worst thing I could do is to hold it in my house, having someone come and steal it.

Michael: You know that I had an interview with Egon von Greyerz out of Zurich and he takes quite the opposite view: I do not touch any bank. So, I have it completely outside the banking system. And therefore, I just wanted to bring that question up. But my impression about what you have just mentioned concerning this private bank of Julius Bär, I can share on.

Ben: I do not know how he holds his gold. I would be interested to know. We are always looking for safe investments..look for safe places to store gold for sure. But I fundamentally believe that to come back to the financial system, it will either be reintroduced as gold standard by government. It well may suit the U.S. to rerate gold. Obviously there will be a huge tax, in a sense of an inflationary tax if you devalue the currency. They could really impact the middle classes who do not own gold. There is a negative in doing that. What I prefer that, and the internet is helping hugely here, what I call it the internet reformation. It is spreading the awareness of what fiat currency is and how dangerous it is and also how gold can protect your purchasing power. And particularly in an environment like this where you have debt saturation. I believe that free markets will have private banks. So, we will have I do not want to get rid of fractional reserve banking per se. Even if I think it is absolutely at the root cause of the problem. Because if you bear in mind sovereigns fund themselves by basically capitalizing banks at the zero-provision, under capital adequacy ratios, Tear1, etc. So, that helps the banks, helps the sovereigns. It is a vicious circle there. Suits them particularly. I feel that free market will dictate where the fractional reserve banking once now people understand that you can loose all your money with a bank. They may well say, hmm, these guys are not behaving responsibly. I am going to take my money out. Obviously, you can say to me, how I am going to know that they are behaving irresponsibly and people have not got time to do that. Well, guess what. People will probably end up shifting more into private banks that have some of their accounts held backed by gold. And I conceive that with the technology of today that we can transact very easily by backing debit cards, payment systems to gold. It is very easy to do. And I am very excited about that possibility.

Michael: The only problem is that we can not go on for ever here even if I would like to talk to you for ever. But probably our listeners will not like it.

Ben: Probably we bore everyone.

Michael: I think I have to split it in two parts already. The last thing we really have to mention is, all things well considered, the only thing that we probably both do not know for the future is how we will manage the political risk.

Ben: The political risk is not indeterminate. Clearly, I have written extensively about financial repression. Anyone who is reading the news, who is educating himself about taxation, regulation, legislation changes, everyone can observe that there are some pretty Draconian acts taking place. The fact that we have technocratic governments put in place. And that is very frightening to me how people just have accepted that effectively without any democratic vote, bang, we have a technocratic government, astounding. But people are so desperate to have normality I think that they almost accept anything. Which and I apologize for talking about Germany in this context, but it amazes me how violent Hitler was in the build-up to becoming a political figurehead and people seem to be so disenfranchised to the current government that they were almost accepting that sort of violence. That can happen anywhere in the world and has happened in the world. That is a very worrying sign for me. And I do not think it is hyperbole to say that either.

Michael: It is funny what you have just mentioned, but I think on a couple of things we have to be very careful watching it. Because even when Adolf Hitler started, it was not that he had started in that way. He promised a lot of work, he knew what he did. And before people realized all out of the sudden the things switched in the other direction. And people tend to forget when I hear today, and yesterday we had a big discussion in the German parliament, that our chancellor, Angela Merkel, said once again if the Euro fails, so fails Europe. So if you put this into the context, I think this is a dangerous time already. Or not?

Ben: Yes, I am not to specifically answer your question on Merkel, but I would say what is pressing to me that you get a polarization of politics, by definition, in a crisis. People have to make bad choices and it is a question of is it a worse or a bad choice. There is no good choice. And I think that is where we are at. The reality is that our standard of living is and will get worse. It is just a question if this will happen quickly or later and, perhaps, more acutely. That is really where I would stand today. And I think the polarization of politics, where you have disenfranchised populations, as you are seeing in Greece, in April we will have an election in Greece. This can blow open the whole Euro-debate even more. We have elections in France and that is a great example where you have François Holland and Marine le Pen, two extremes, two sides of a coin again if you wish. They are certainly one feels that they have been betrayed. France has been betrayed. And one wants to get very protectionists, wants to put up capital controls. The other wants to rip up the political agenda, the accord that has been created. So, this kind of dynamic I think means we have a very rocky road ahead. I personally think that is a fait accompli. That at some point the system is going to see a very high INFLATION, irrespective of the fact that we have debt deflation on one side of that coin. And that is where we are I am on this position. I would say that the beauty of gold is it really does. I know people say, you can not have the cake and eat it. I really do feel that it protects you in terms of risk default. I think that is very important. And at the same time it protects your purchase power when you have an increase in the money supply and in inflationary implications either, rising the value of goods.

Michael: Last and final question. It is a private question. I know that you have kids, but you are not already a grandfather as I am. If you would have grandchildren growing up right now, what would you advice them. What would you, with all your knowledge, advice them to do, to learn, where to live. Any idea on that?

Ben: For some people these are heavy topics. For a parent first and foremost I would say taking responsibility for yourself is paramount. And I think under a welfare system, not necessary the fault of the populace, but we allowed government to really expropriate some of our own thoughts and the ability to think for ourselves. Effectively, we have had things handed to us very easily. My generation, particularly, we had a very easy ride in many respects, in terms of that we had not have to fight for our freedom, in terms of physically, we have not experienced the awful international wars like the First and Second World War and the mess that that created. It very acutely stays with the previous generation and that has been passed on. I had a very puritanical upbringing in many ways, in terms of material goods, which I am very thankful but I had a lot of love. And I would say for my grandchildren they need to be self-sufficient, but at the same time they need to be held within a family that sticks together and that includes friends. I speak to my parents who, thankfully, are still alive. I make sure that I speak to them once or twice a week. When I was a bit younger and earning what was considerable money, about 15 years ago, for a young man I perhaps lost sight of my family roots but  not to get too personal  I would say it is self-sufficiency, taking responsibility, love your family and I think that educate yourself every day, that is part of that self-sufficiency. And not to rely on anyone other than perhaps even your family.

Michael: Sounds very good for me. Ben, people who listen to us and might want to make contact to you, they can just go to your website and we, of course, will include a link to Hinde Capital. And if they want to be invested in your fund, they can find there an address to contact your marketing d" type="audio/mpeg">
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t-size: medium;">Ben: Yes, that is right. If you just go to our website, which is www.hindecapital.com, and that is spelled H-I-N-D-E capital dot com. The website has a section you see how to invest. You just fill in the minor details there and you get sent information that is not holding you to make an investment, at all. It just allows you to get the market materials and you have to sign off a disclaimer. Thats it. One of our marketing ladies will be very happy to help you or even myself. I often talk to a lot of our clients. I feel where it is possible it is really important that we communicate what we are doing. I think most of the people within the fund, we communicate regularly through our literature and through conversations, exactly, what we do. I would actually say not many now need to call us in terms of the performance of the fund. They know them when markets going up, gold markets. We are probably making the gold market, if not more. And when it is going down, we are not losing as much. But over a quarter over a year, we are outperforming and  I use this phrase again - as we say in English we do what we say on the tin and hopefully, we will continue to do that for you.

Michael: Ben Davies , Co-Founder & CEO of Hinde Capital. It was a great pleasure to have you on our show today. Thank you very much Ben.